Barnett's Growth and Income Trust Joins Dividend Heroes

Perpetual Growth and Income has increased its dividend for the past 20 years and has joined the AIC's list of dividend heroes

James Gard 28 May, 2019 | 4:16PM

Invesco's Mark Barnett

Perpetual Income and Growth (PLI) is the latest investment trust to join the list of the AIC’s “dividend heroes”, which have increased their payout to shareholders for 20 years in a row.

The trust, which has been managed by Mark Barnett for 20 years, has a three-star rating from Morningstar. It becomes the 21st investment company to join the list but is a long way off the leader, the City of London Investment Trust (CTY), which has increased its dividend for 52 consecutive years. The City of London trust was set up in 1891 and has a Silver Rating from Morningstar.

According to Morningstar research, some 31 listed UK trusts have a dividend yield of more than 4%, including Perpetual Income and Growth.

In March, Morningstar analysts looked at which UK funds have the highest exposure to domestic revenues and Barnett’s funds rank highly, as does Neil Woodford’s Equity Income fund.

“Given that Woodford and Barnett are former colleagues with a similar contrarian, value-based approach to managing money, it is perhaps no surprise that they have similar positioning,” says Morningstar analyst Ashis Dash.

AIC Dividend Heroes

Barnett also manages the following Bronze-rated open-ended trusts: Invesco Income UKInvesco UK Strategic Income, and Invesco High Income UK. In addition, he has managed the Silver-rated Edinburgh Investment Trust (EDIN), which has a four-star rating from Morningstar, since 2014.

Barnett said that he continues to look for companies that can grow their dividend payments ahead of inflation and are attractively valued. He joins colleague Ciaran Mallon, manager of the Invesco Income Growth Trust (IVI), on the list of dividend heroes. 

Why Dividends Matter

While high-yielding investment trusts can be an appealing option, experts often say that it is more important to find a vehicle that will grow its payout year-on-year. This hopefully means that the income received from the trust rises in line with inflation. Dividends make up a good proportion of long-term equity returns, studies have shown.

With rates cash savings accounts at rock-bottom and listed companies such as Vodafone slashing their dividends, a reliable improvement in payouts provides reassurance to investors, particularly during times of stock market and political uncertainty.

What is also interesting about the AIC's list is that many of the heroes are not just pure income plays but have managed very strong capital gains in recent years, such as Scottish Mortgage Investment Trust (SMT). Scottish Mortgage has a Gold Rating from Morningstar and is managed by Tom Slater and James Anderson. 

Long-established trusts such as Witan (WTAN), Alliance Trust (ATST) and F&C Investment Trust (FCIT) all have global growth mandates.

The Association of Investment Companies communications director, Annabel Brodie-Smith, says investment trusts are a good vehicle for income seekers because they can “tuck away up to 15% of the income they receive each year” and continue to increase payouts in leaner years. This is known as smoothing.

Investment trusts have some advantages over OEICs and unit trusts in terms of dividends. Unit trusts can be forced to pay out cash to investors if there are more sales than purchases of units, whereas investment trusts are less affected by day-to-day trading in their shares because of their fixed capital structure.

Perpetual Growth and Income also trades on a discount to net asset value (NAV) of over 13%,as Barnett's value investing approach has been out of favour in the recent bull market. The discount gives investors opportunities to amplify their gains if the trust moves to a premium to its NAV.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
City of London Ord403.00 GBX-0.98
Edinburgh Investment Ord541.00 GBX-0.73
Invesco High Income UK Z Acc294.95 GBP0.69
Invesco Income UK Z Acc296.00 GBP0.70
Invesco UK Strategic Inc UK Z Acc295.88 GBP0.83
Perpetual Income & Growth Ord291.23 GBX0.42

About Author

James Gard  is content editor for Morningstar.co.uk

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